CVS Health stock has moved from one of the worst performers in the S&P 500 index in 2024 to the second-best performer this year. It has risen in the last six consecutive weeks and is hovering at its highest level since December 2. It is up by over 33% from its lowest point in December.
CVS Health is facing major challenges
CVS Health, the biggest pharmacy chain in the US, has gone through major challenges in the past few years.
Retail theft has become rampant, and its strategy of locking up some items has turned off many potential customers.
The cost of doing business has surged in most states, and it was forced to pay about $5 billion to settle its opioid bill.
Further, it is facing substantial competition from companies like Amazon and Walmart that have invested substantial sums of money in the pharmaceutical industry.
CVS and Walgreens Boots Alliance have also been accused of taking part in price increases in the United States. In particular, they have been criticized for their pharmacy benefits companies that deal with manufacturers.
CVS has also faced the challenge of weak consumer spending in the US, because of inflation and high interest rates.
All these challenges have meant that, while its annual revenue is growing, profitability has been an issue. CVS Health made $356 billion in 2023, up from $321 billion in the last financial year.
CVS profit issues
The most recent quarterly results showed that CVS Health had over $95.4 billion in revenue, an increase from $89.76 billion in the same period in 2023. However, its operating income dropped by over $2.58 billion to $352 million, while its earnings per share fell to $1.09.
The big profit drop was because of the restructuring process that cost it over $1.2 billion. This restructuring included layoffs and store closures. CVS has already closed hundreds of nonperforming stores in the US.
CVS Health’s management is working to improve its business. It is remodeling some of its stores to boost their appeal. Most importantly, it is considering reversing its Aetna acquisition to break itself apart.
Therefore, the upcoming earnings, scheduled on February 12, will provide more color on what to expect later this year. Analysts anticipate that CVS made $97 billion in the fourth quarter, briging its annual figure to $371 billion. CVS is expected to make $386 billion in 2025.
CVS’s restructuring costs are expected to lead to a drop of its earnings per share (EPS) to $5.2. It will then rise to $6.04 this year.
A case for buying CVS Health stock makes sense since the recent crash has made it a highly undervalued company. It has a forward P/E ratio of 18, much lower than the sector’s average of 29.
Read more: Here’s why the CVS Health stock price may rebound in 2025
CVS Health stock price analysis
The daily chart shows that the CVS share price has dropped sharply from last year’s high of $100.45 in 2022 to a low of $43. It has formed a descending channel shown in black. This channel formed a series of higher highs and higher lows.
The stock has rebounded after bottoming at $43, a notable level since it was the lowest swing in 2019. This rebound has seen it jump to the upper side of the descending channel. The rebound was in line with our previous CVS forecast.
CVS Health stock has remained below the 50-day and 100-day moving averages. Therefore, more upside will be confirmed if the stock moves above the descending channel. If this happens, the next point to watch will be at $77.05.
The other scenario is where the CVS Health stock price hits the upper side of the descending channel and then resumes the downtrend.
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